Pause for reflection 1: Organizational competence and industry structure

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Pause for reflection 1Organizational competence
and industry structure
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Key elements of a coherent strategy statement?

• WHAT customer value you will provide
• HOW your internal capabilities will allow you to
  provide this value
• WHY your external environment is such that this
  provision will not be either
• (a) instantly replicated or
• (b) have its value extracted by other powerful
  players in the value chain

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Deciphering Business Unit Strategic Analysis A
Pause to Date
Industry Structure
Entrepreneurial Judgement and Leadership
Organizatonal Capabilities
Strategy
Change Trends
All interlinked, all essential elements of
strategy
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Entrepreneurial Judgement and Leadership

• The role of managerial insight,
  entrepreneurship, and leadership
• Ability of the CEO to articulate and permeate
  into the organization a clear vision

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Change Trends

• Technology
• Consumer Preferences
• New Markets

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Foundations of competitive advantage
Dynamic Value Creation
Industry Structure
Organizational Competence
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Five-Forces Analysis
Threat of Entrants
Buyer Power
Supplier Power
Rivalry
Threat of Substitutes
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The 5 Forces Characterizing environmental
pressure

• Substitutes
• How high can we raise prices before substitutes
  become a significant threat?
• Rivals
• Will competition between rivals drive down
  possible returns?
• Suppliers and Buyers
• Will powerful suppliers or buyers extract value?
• Entry
• Threat of entry if profits rise, will new
  entrants rush into the market in an attempt to
  capture them?

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Industry structure The strategic imperative

• Choose (or create!) attractive industries
• Take advantage of changes in industry structure
• New technologies
• New or shifting customer needs
• The emergence of new industry segments
• Changes in government regulation
• To move early to exploit structural change
• Establish economies of scale
• Reduce costs through cumulative learning
• Establish unique (and defensible) brand names,
  customer relationships, distribution channels...

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Industry structure as a source of strategic
advantage

• Speaks to the profitability of the average
  incumbent in the industry
• Key question
• Will the power of suppliers, buyers, substitutes,
  potential entrants and rivalry be such that
  returns in this industry will be competed away?
• Empirical evidence
• 75 of the variance in the returns of the
  average business in an industry explained by
  the industry
• 19 of the variance in returns across businesses
  explained by the industry in which the business
  competes

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Organizational Competence as a source of
strategic advantage

• What are competencies?
• a set of differentiated skills, complementary
  assets, and routines that provide the basis for a
  firms competitive capacities and sustainable
  advantage in a particular business (TPS in DLB
  p. 112)
• a knowledge set that distinguishes adn provides
  a competitive advantage. (DLB, p. 113)
• Speaks to the degree to which a firm can
  differentiate itself from others in the industry.
• Key Question
• Can we create or acquire unique organizational
  competencies that will provide a unique cost and
  or/quality advantage in the industry?
• Empirical evidence
• Mixed! But in many studies of performance firm
  effects dominate industry effects

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Four Dimensions of Organizational Competence

• Skills and knowledge
• But how can these kinds of assets ever be a
  source of competitive advantage since people can
  walk?
• Managerial systems
• Technical systems
• Values and norms

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The competence story so far...
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.....but the accompanying core rigidity story.
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Competence as a source of competitive advantage

• Heterogeneity
• Ex post limits to competition
• Can this competence be imitated?
• Imperfect resource mobility
• Can this competence be bought or stolen away?
• Ex ante limits to competition
• Will there be such intense competition to acquire
  this resource that all returns will be competed
  away?

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Competencies as a source of value
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Organizational CompetenceThe Strategic
Imperative

• Invest in unique organizational competencies that
  satisfy Peteraffs criteria That cannot be
  imitated, traded or stolen, and that are not so
  expensive that they do not yield an adequate
  return
• Take advantage of
• Causal ambiguity Complexity the deep history of
  the organization unique values and/or norms
• To gradually build up competencies that your
  competition cannot understand an cannot imitate
• But be aware that core competencies may become
  core rigidities

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But what is the relationship between ind.
structure and org. competence?

• Industry structure describes the average
  profitability of the average firm a
  description of how tough the environment is
• Organizational competencies are unique to
  particular firms they describe how well a
  particular firm is positioned within an industry
• BUT many features of industry structure reflect
  crystallized competence -- the effect of unique
  competencies working over extended periods
• THUS Effective strategies exploit the dynamic
  relationship between competence and structure

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What Matters Generating Capabilities and
Competitive Advantage

• Industry Structure
• Invidual Judgement and Entrepreneurship
• Organizational Capabilities
• Dynamic Nature of Industries, Technology, and
  Competition